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Long Term Care Risk For Couples and Singles

Author

Listed:
  • Elena Capatina
  • Gary Hansen
  • Minchung Hsu

Abstract

This paper compares the impact of long term care (LTC) risk on single and married households and studies the roles played by informal care (IC), consumption sharing within households, and Medicaid in insuring this risk. We develop a life-cycle model where individuals face survival and health risk, including the possibility of becoming highly disabled and needing LTC. Households are heterogeneous in various important dimensions including education, productivity, and the age difference between spouses. Health evolves stochastically. Agents make consumption-savings decisions in a framework featuring an LTC statedependent utility function. We find that household expenditures increase significantly when LTC becomes necessary, but married individuals are well insured against LTC risk due to IC. However, they still hold considerable assets due to the concern for the spouse who might become a widow/widower and can expect much higher LTC costs. IC significantly reduces precautionary savings for middle and high income groups, but interestingly, it encourages asset accumulation among low income groups because it reduces the probability of meanstested Medicaid LTC.

Suggested Citation

  • Elena Capatina & Gary Hansen & Minchung Hsu, 2024. "Long Term Care Risk For Couples and Singles," ANU Working Papers in Economics and Econometrics 2024-697, Australian National University, College of Business and Economics, School of Economics.
  • Handle: RePEc:acb:cbeeco:2024-697
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    File URL: https://cbe.anu.edu.au/researchpapers/econ/wp697.pdf
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    Keywords

    Long Term Care; Household Risk; Precautionary Savings; Medicaid;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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